- Reasonable-basis suitability –brokers must perform reasonable diligence to understand the nature of the recommended security, including its potential risks and rewards and whether it would be a suitable investment for any investor.
- Customer-specific suitability – this obligation looks to the customer’s investment profile. The broker must have a reasonable basis to believe that the recommended security is suitable for the particular customer.
- Quantitative suitability – requires a broker who has actual, or de facto, control of a customer account to have a reasonable basis for believing that a series of recommended transactions, even if suitable when viewed in isolation, are not excessive and/or unsuitable for the customer.
The Rule also sets forth an expanded list of customer-specific factors that must be obtained and analyzed by firms as part of their suitability inquiry, including age, investment experience, time horizon, liquidity needs and risk tolerance.For additional information concerning the new suitability rule please contact the Jacko Law Group at (619) 298-2880.